- Recent housing price data at the national level suggests that while home price growth may be slowing, prices continue to increase at a strong pace—faster than what would be considered typical. Strong buyer demand and low inventories coupled with still relatively low levels of new construction are continuing to push prices up and keep housing market tipped in favor of sellers in most local markets. However, prices in some areas are creating affordability concerns that may dampen demand and slow the pace of increase in the months to come.
- The pace of home price growth still has a substantial way to go before it moves back to a rate that is sustainable. New construction is needed to help meet the continued strong demand from buyers in an economy where jobs are still being created and there is a low supply of homes for sale. Without an increase in new construction, affordability could cause a new housing crisis where would-be owners are held back by ever-rising rents, debt obligations such as student loans, and a lack of affordable housing supply.
- Various data sources are flashing the same rising price signals:
- Today, CoreLogic released their housing price index data for May 2016 which confirms that home prices continue to increase faster than incomes. The national index grew by 5.9 percent year over year as measured by CoreLogic. This is a slight acceleration from the pace of increase measured in the last few months because the data has frequently been revised lower.
- Last week, Case Shiller data showed that house prices rose roughly 5 percent in all three indices since April 2015. The national index gained 5.0 percent, while the 10-city composite rose 4.7 percent and the 20-city composite rose 5.4 percent year over year. Each area’s measured gain was 0.1 precent lower in April than March.
- Nearly two weeks ago, the Federal Housing Finance Agency (FHFA)and the National Association of Realtors® (NAR) reported price data for April and May.
- NAR data showed that prices grew at a 5.6 percent pace from April 2015 to April 2016. NAR also reported on new May 2016 data which showed a slight deceleration to 4.7 percent growth from one year ago.
- FHFA data showed that prices were up 5.9 percent in April from one year ago, slightly slower than the pace seen in March, but within the 5 to 6 percent pace seen in the last 15 months .
- Potential buyers and sellers should be sure to put the national numbers in the context of what is going on in their local markets. The fastest overall growth rates in the NAR data are in the West where prices rose 6.8 percent from one year ago. By contrast, NAR’s median price showed a slight decline in the Northeast.
- Case Shiller data show similar results. The strongest price growth was seen out West in Portland (12.3%), Seattle (10.7%), and Denver (9.5%) in the year ending April 2016. By contrast, Washington DC (1.9%), New York (2.6%), and Cleveland (2.9%) were the slowest growing markets. Data shows that sellers in these somewhat weaker areas may not have as much power to demand higher prices for their homes given the local market. How does your market compare to the national price trends?
- NAR reports the median price of all homes that have sold while Case Shiller, CoreLogic, and the Federal Housing Finance Agency report the results of a weighted repeat-sales index. Case Shiller uses public records data which has a reporting lag. To deal with the lag, Case Shiller data is based on a 3 month moving average, so reported April prices include information from repeat transactions closed in February, March, and April. For this reason, changes in the NAR median price tend to lead other indexes and may suggest that some relief in price growth could be on the horizon.
 Personal income increased at a 4.0 percent pace year over year in May, and while disposable personal income increased at a 4.1 percent pace, per person disposable income was up only 3.3 percent. These figures are in current dollars, not adjusted for inflation.
 May’s pace is a deceleration from the first-reported pace of increase in the previous few months. Per the methodology, CoreLogic price indices are “fully revised with each release.”
- Existing-home sales increased 1.8 percent in May from one month prior while new home sales dropped 6.0 percent. These headline figures are seasonally adjusted figures and are reported in the news. However, for everyday practitioners, simple raw counts of home sales are often more meaningful than the seasonally adjusted figures. The raw count determines income and helps better assess how busy the market has been.
- Specifically, 526,000 existing-homes were sold in May while new home sales totaled 51,000. These raw counts represent a 12 percent gain for existing-home sales from one month prior while new home sales decreased 11 percent. What was the trend in recent years? Sales from April to May increased by 12 percent on average in the prior three years for existing-homes and were unchanged for new homes. So this year, existing-homes performed their recent norm while new home sales underperformed.
- Why are seasonally adjusted figures reported in the news? To assess the overall trending direction of the economy, nearly all economic data – from GDP and employment to consumer price inflation and industrial production – are seasonally adjusted to account for regular events we can anticipate that have an effect on data around the same time each year. For example, if December raw retail sales rise by, say, 20 percent, we should not celebrate this higher figure if it is generally the case that December retail sales rise by 35 percent because of holiday gift buying activity. Similarly, we should not say that the labor market is crashing when the raw count on employment declines in September just as the summer vacation season ends. That is why economic figures are seasonally adjusted with special algorithms to account for the normal seasonal swings in figures and whether there were more business days (Monday to Friday) during the month. When seasonally adjusted data say an increase, then this is implying a truly strengthening condition.
- What to expect about home sales in the upcoming months in terms of raw counts? Independent of headline seasonally adjusted figures, expect busier activity in June but less activity in July for existing-home sales. For example, in the past 3 years, June sales typically increased by 7 to 16 percent from May while in July sales typically decreased by 2 to 4 percent from June. For the new home sales market, the raw sales activity tends to decrease in both June and July. For example, in the past 3 years, June sales typically dropped by 6 to 12 percent and July sales decreased further by 2 to 23 percent from June.
We know that veterans and active-service members are a unique buying demographic that made up 21 percent of all home buyers in 2015. We also learned this year that veterans move a median of 75 miles from the home they previously sold to their new home purchased, whereas that active-duty military most often purchase a home due to a job relocation. With this in mind, working with a real estate agent that knows the local area is that much more vital for this group of home buyers.
According to the 2016 Veterans and Active-Military Home Buyers and Sellers Profile, consistent with all buyers, veterans and active-service military first looked online for properties. Both veterans (17 percent) and active-service military (20 percent) contacted a real estate before doing anything else, more so than all buyers (14 percent). Veterans and active-service military also got their information from real estate agents more than any other source, compared to all buyers that frequently looked online in addition to working with an agent. Veterans were also slightly more likely to find the home they purchased directly from an agent at 38 percent, compared to 33 percent of all buyers. For veterans and active-service military alike, finding the right property was the most difficult step in the process.
Eighty-five percent of veterans and 86 percent of active service members purchased their home through a real estate agent. More so than all buyers, veterans wanted help from an agent to determine what comparable homes were selling for in the area and active-service members wanted help to learn more about the neighborhoods. Eighty-nine percent of veterans and 90 percent of active-service members were satisfied with the home buying process. Eighty-seven percent of veterans and 85 percent of active-service members would use their agent again or recommend their agent to others.
America’s population is increasingly aging: roughly one in three will be 55 years and older by 2060, up from about one in five in 2010. What are the housing choices of the 55+ adult population?
In a presentation at the REALTOR® University Speaker Series held recently, Dr. Sean Becketti discussed the results of a recent study by Freddie Mac on the housing choices of the 55+ population, presenting information that either validated or disputed some commonly held notions or “myths” about the 55+ population. Dr.Sean Becketti is Chief Economist and Vice-President of Freddie Mac.
Among the highlights of the study are:
1) Majority of the adult 55+ want to age in place. Approximately 63% of 55+ homeowners would prefer to stay in their current residence because they are satisfied with their community (56%) and their current homes (65%). However, nearly one in four (23%) of 55+ homeowners would need major renovations that will enable them to remain mobile and safe in their homes.
2) Only a minority want to downsize or retire to a warmer state. Only 20 percent cited downsizing as a “very important” reason for moving, and only 19 percent cited moving to a warm climate as a “very important” reason. The “very important” reasons when deciding to move and where to live are: affordability of living in a community (46%), amenities for retirement (44%), less maintenance (41%), and proximity to family members (31%).
3) Many of the 55+ are not financially prepared for retirement. Approximately 36 percent of those retired, and 57 percent of those still working, are still paying a mortgage. Of those, a majority still have 10 years on their loan. Only 20 percent of those in the workforce feel “very confident” they’ll be financially ready for retirement, and only 34 of those who are already retired say they “strongly agree” that they feel financially secure. Not surprisingly, confidence among both groups increases with income. And when the “somewhat confident” and “somewhat agree” groups are included, the picture looks rosier—well over half of each group expresses confidence regardless of income.
4) Approximately 20 percent of 55+ headed households have provided their children with money for a down payment.
Homeowners who have provided—or expect to provide—down payment assistance to their children was surprisingly small. In addition, relatively few reported receiving such assistance at all from their own parents. In fact, 15 percent of respondents indicated that they are unwilling to provide financial assistance although they are financially able to do so.
About the Speaker
Dr. Sean Becketti is Chief Economist and of Freddie Mac. Prior to this, he was senior vice president and head of modeling and analytics of Flagstar Bank. His experience also includes senior executive roles with Washington Mutual and Wells Fargo in which he led research functions focused on mortgage markets and capital markets. Dr. Becketti also previously worked at Freddie Mac from 1996 – 2001 in several senior financial and analytical roles. Earlier in his career, he served as senior economist with the Federal Reserve Bank of Kansas City and as an assistant professor of economics at UCLA. Dr. Becketti holds master’s and Ph.D. degrees from Stanford University and a bachelor’s degree from University of California – Santa Cruz.
About REALTOR® University Speaker Series
REALTOR® University provides on-line education on real estate and other topics at the MBA and undergraduate levels. The REALTOR® University Speaker Series provides a venue to learn about and stimulate discussion of economic and real estate issues in support of NAR’s mission as the Voice of Real Estate. The Speaker Series presentations can be accessed on this webpage.
 Census Bureau projections.
 To find out more about this study and to collaborate with Freddie Mac on this research, please contact Anthony Hutchinson, Director, Government and Industry Relations, at email@example.com.
 Thanks to Meredith Dunn, Communications Manager, for recording and editing the webinar video.
Active military and veterans made up 21 percent of all home buyers in 2015. According to NAR’s 2016 Veterans & Active Military Home Buyers and Sellers Profile, the typical veteran home buyer is 61-years old, married without children under the age of 18 living at home. Veterans move long distances for retirement and to be closer to friends and family. They often purchase senior-related housing.
The median age for veteran home buyers is 61 years old, compared to 34 years for active-duty members and 44 years for all buyers. As veterans become older in age, their reasons for purchasing a home shifts towards the desire to move closer to friends and family (14 percent) and retirement (11 percent), compared to active-duty service members that purchased a home due to a job relocation (33 percent). Veterans and active-service members also only searched for eight weeks for the home they purchased, compared to 10 weeks for all buyers.
That being said, 43 percent of veterans bought senior-related housing, compared to only 14 percent of buyers over 49 years of age. Twenty-one percent of active military bought multi-generational homes compared to 13 percent of all buyers. Veterans also moved the farthest distances to be closer to friends and families at a median of 75 miles, compared to 14 miles for all buyers.
Veterans are more likely to be married (78 percent) or single males (13 percent), compared to 67 percent of all buyers that are married and nine percent of single males. Seventy-four percent of veterans reported having no children under the age of 18 living at home, compared to 63 percent of all buyers. Nearly half of active-duty service members reported having at least two children under 18 living at home.
Veteran Home Buyers: Moving Long Distances into Senior-Related Communities
Commercial real estate investment trends were positive in 2015, with sales of large cap CRE transactions—over $2.5M—totaling $543 billion, based on Real Capital Analytics (RCA) data. However, in the first quarter 2016 sales volume dropped 20 percent on a yearly basis, to $111 billion. Part of the decline was due to large portfolio transactions in the first quarter of 2015, which were absent this year.
In contrast to the large cap transactions reported by RCA, commercial REALTORS® managed transactions averaging less than $2.5 million per deal, frequently located in secondary and tertiary markets. The Commercial Real Estate Lending Trends 2016 shines the spotlight on this significant segment of the economy.
Based on National Association of REALTORS® (NAR) data for the small cap CRE markets, sales rose 8.5 percent year-over-year during the first quarter of this year. The average sale transaction price totaled $1.1 million during the quarter. With inventory shortage continuing as a main concern, prices in small cap CRE markets rose a more moderate 5.1 percent year-over-year during the period. Average capitalization rates declined to an average 7.2 percent across all property types, a 60 basis point compression on a yearly basis.
However, in a reversal of the trend, lending conditions tightened in REALTORS®’ markets, with 33 percent of NAR members reporting tightening lending conditions, a noticeable increase from the prior year’s 23 percent. At the same time, the percentage of members who reported that lending eased dropped from 42 percent in 2015 to 31 percent in 2016.
In addition, for 26 percent of members, the average transaction’s loan-to-value (LTV) was 70 percent or lower, with 48 percent of total deals posting LTVs of 75 percent and above. Just as importantly, cash deals comprised 26 percent of all transactions. While the figure represents a decline from prior years, it remained a significant component of small cap markets’ financing.
For more information and the full report, access NAR’s Commercial Lending Trends 2016 at http://www.realtor.org/reports/commercial-lending-trends-survey.
The share of first-time home buyers accounted for 30 percent of residential sales in May 2016 (32 percent in April 2016; 32 percent in May 2015), according to the May 2016 REALTORS® Confidence Index Survey Report. REALTORS® have reported that the lack of supply especially of affordable homes, the difficulty in qualifying for a mortgage, and the inability to make a downpayment have made purchasing a home difficult for potential first-time buyers despite the low-interest rate environment.According to NAR’s 2016 Q1 Housing Opportunities and Market Experience (HOME) Survey of U.S. households, 63 percent of respondents who currently do not own a home believe it would be difficult to qualify for a mortgage given their current financial situation. The widening gap between gains in income and home prices has made it more difficult to qualify for a mortgage, save for a downpayment, and meet the monthly mortgage payment. As of April 2016, the median family income is up by 10 percent compared to the level in January 2012, while the median price of an existing home is up by 45 percent over this same period.Although education increases the likelihood of being a homeowner in the long-run, the level of student debt has also delayed a home purchase, according to a joint survey on student loan debt by NAR and SALT®, a consumer literacy program provided by nonprofit American Student Assistance®. Seventy-one percent of non-homeowners polled in the survey believe their student loan debt is delaying them from buying a home. Those polled in the survey only include borrowers who are currently in repayment.
 First-time buyers accounted for about 32 percent of all home buyers based on data from NAR’s 2015 Profile of Home Buyers and Sellers (HBS). The HBS is a survey of primary residence home buyers and does not capture investor purchases but does cover both existing and new home sales. The RCI Survey is a survey of REALTORS® about their transactions and captures purchases for investment purposes and second homes for existing homes.
 NAR data used in calculating the Home Affordability Index.
In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® asks members “For the last house that you closed in the past month, how long was it on the market from listing time to the time the seller accepted the buyer’s offer?”
At least half of the properties that sold in March–May 2016 were on the market for 30 days or less in the District of Columbia, Washington, Oregon, California, Idaho, Utah, Colorado, Nebraska, Kansas, Texas, Minnesota, Iowa, and Massachusetts, according to the May 2016 REALTORS® Confidence Index Survey Report. Local conditions vary, and the data is provided for REALTORS® who may want to compare local markets against other states and the national summary.
Nationally, properties sold in May 2016 were typically on the market 32 days (40 days in April 2016; 39 days in May 2015).1 Short sales were on the market for the longest time at 103 days, while foreclosed properties typically stayed on the market for only 51 days. Non-distressed properties were typically on the market for 30 days.
Nationally, 49 percent of properties were on the market for less than a month when sold compared to 45 percent last month and one year ago. About 11 percent of properties sold in May 2016 were on the market for longer than six months.
1 Respondents were asked “For the last house that you closed in the past month, how long was it on the market from listing time to the time the seller accepted the buyer’s offer?” The median is the number of days at which half of the properties stayed on the market. In generating the median days on market at the state level, we use data for the last three surveys to have close to 30 observations. Small states such as AK, ND, SD, MT, VT, WY, WV, DE, and D.C., may have fewer than 30 observations.
In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® asks members “In the neighborhood or area where you make most of your sales, what are your expectations for residential property prices over the next year?”
Among REALTORS® who responded to the May 2016 survey, the national median expected price change over the next 12 months was 3.3 percent (3.8 percent in April 2016; 3.6 percent in May 2015), according to the May 2016 REALTORS® Confidence Index Survey Report. On the one hand, REALTORS® expect housing price growth to moderate as rising prices have made homes less affordable for many. On the other hand, tight supply is leading to expectations of further price increases.
The map shows the median expected price change in the next 12 months for each state based on the March–May 2016 RCI surveys. The District of Columbia and the states of Washington, Oregon, and Colorado are the areas that are expected to have the highest price growth, with the median expected price growth at more than five to seven percent in each of these states. REALTOR® respondents from California, Nevada, Idaho, Minnesota, Michigan, Tennessee, South Carolina, and Florida also expected strong price growth, with the median expected price growth at more than four to five percent in each of these states.
With so many new entrants into the real estate field in 2015, our research analysts pondered where they all came from. We saw in a previous article An Influx of Young Members to the REALTOR® Family that NAR membership was growing. According to the 2016 Member Profile, members with less than one year experience in the industry jumped to 20 percent in 2016 up from 11 percent the year before. In addition, more new entrants were young in age. Five percent of members were under 30 years old, up from two percent in the previous year. To better understand our membership, we dug into the data to see what industries members came from before entering real estate.
For all members, the general trends are that 16 percent came from management/business/finance, 16 percent came from sales/retail, and real estate was their first career for four percent. Once we segmented the data by gender, age, and education. Across all segments, we found that members predominantly came from management/business/finance and sales/retail. But in smaller numbers, members came from other interesting career fields.
When we segmented the data by gender, slightly more males than females came from management/business/finance as well as sales/retail. Thirteen percent of women came from office/administration support compared to only two percent of men. Seven percent of men came from construction and five percent said real estate was their first career. Eight percent of women came from education, seven percent from healthcare, and seven percent were homemakers.
Next we segmented by age. For members under 30 years, nine percent from office administration, nine percent said real estate was their first career, and eight percent came from education. The younger the age, the more likely it is that real estate is a member’s first career. As age increases, the likelihood that a member came from management/business/finance also increases. The opposite is true for the sales and retail field; as age increase, the likelihood that a member came from sales and retail decreases.
Last, we segmented by education. The trends were fairly the same as for all members; however there were a few outliers. For those with only some high school education, 16 percent came from personal care services and 10 percent came from the transportation sector. For those who have some graduate work or more, NAR members came from education. For those with a doctoral degree, 28 percent came from education, 16 percent from the legal field, and 15 percent from healthcare.
In the monthly REALTORS® Confidence Index Survey, the National Association of REALTORS® (NAR) asks members to rate the past month’s buyer and seller traffic in the neighborhood or area where they make most of their sales. NAR compiles the responses on buyer traffic into a REALTORS® Buyer Traffic Index and the responses on seller traffic into a REALTORS® Seller Traffic Index.
The maps below show the condition of buyer and seller traffic using data collected from March‒May 2016, according to the May 2016 REALTORS® Confidence Index Survey Report.
Local conditions vary in each state, but the REALTORS® Buyer Traffic Index indicates that markets were “moderate” to “very strong” in all states except in Alaska, Delaware, and Connecticut where buyer traffic was “weak.”
Amid strong demand, seller traffic was “weak” in many states, measured by the REALTORS® Seller Traffic Index. However, seller traffic was “strong” in several states, including those that had benefited from the oil boom but who are now facing slower job growth due to lingering lower oil and natural resources prices—North Dakota, Wyoming, New Mexico, and Texas. The slower job growth and job cutbacks in these states have led to more home selling and a shift to a buyer’s market.Sparse new home construction has been a major factor driving prices up. Although the number of permits authorized for new privately owned housing units has been improving (1.15 million units on an annualized basis in May 2016), 53 percent of new construction has been multi-family structures, which are mostly for rental occupancy. In 2005, multi-family structures accounted for only 20 percent of new construction, so the availability of single-units for purchase among recently constructed properties is lower than is historically normal.REALTORS® reported low inventory of properties in the lower price range and for those that are move-in ready. The gap in demand and supply has led to strong price growth especially in California, Colorado, Florida, Oregon, South Carolina, Utah, and Washington. Of the 178 metro areas that NAR tracks and has price data on, 28 metro areas experienced price growth in the range of ten to 25 percent in the first quarter of 2016 compared to the levels in the first quarter of 2015.
 The index for each state is based on data for the last three months to increase the observations for each state. Small states such as AK, ND, SD, MT, VT, WY, WV, DE, and D.C., may have fewer than 30 observations. Respondents were asked “How do you rate the past month’s buyer traffic in the neighborhood(s) or area(s) where you make most of your sales?” Respondents rated conditions or expectations as “Strong (100),” “Moderate (50),” and “Weak (0).” The responses are compiled into a diffusion index. For graphical purposes, index values 25 and lower are labeled “Very weak,” values greater than 25 to 49 are labeled “Weak,” a value of 50 is labeled “Moderate,” values greater than 50 to 75 are labeled “Strong,” and values greater than 76 are labeled “Very strong.”
 Respondents were asked “How do you rate the past month’s seller traffic in the neighborhood(s) or area(s) where you make most of your sales?” Respondents rated conditions or expectations as “Strong (100),” “Moderate (50),” and “Weak (0).” The responses are compiled into a diffusion index. A value of 50 indicates a balance of respondents who reported “Strong “and “Weak” markets. For graphical purposes, index values 25 and lower are labeled “Very weak,” values greater than 25 to 49 are labeled “Weak,” a value of 50 is labeled “Moderate,” values greater than 50 to 75 are labeled “Strong,” and values greater than 76 are labeled “Very strong.”
 https://communityimpact.com/houston/the-woodlands/economic-development/2015/12/09/falling-oil-prices-starting-to-affect-woodlands-economy/; http://www.theatlantic.com/business/archive/2015/06/north-dakota-oil-boom-bust/396620/
 Based on the latest data for the first quarter of 2016, 92 percent of the multi-family units completed were for rental occupancy with regions varying from 90 percent in the West to 100 percent in the Midwest. Source: Census Bureau. Quarterly Starts and Completions by Purpose and Design, Units Per Building, 2016 preliminary data. https://www.census.gov/construction/nrc/pdf/quarterly_starts_completions.pdf
- NAR released a summary of existing-home sales data showing that housing market activity increased for the third consecutive month, as May’s existing-home sales reached the 5.53 million seasonally adjusted annual rate. May’s existing-home sales are up 4.5 percent from a year ago which resulted in the strongest pace since February of 2007.
- The national median existing-home price for all housing types was $239,700 in May, up 4.7 percent from a year ago.
- Regionally, three of the four regions showed growth in prices from a year ago, with the West leading at 7.7 percent. The South had an increase of 5.9 percent, and the Midwest followed with a 4.8 percent increase. The Northeast had the only decline of 0.1 percent from May 2015.
- From April, three of the four regions experienced increases in sales. The West dominated regional sales with an increase of 5.4 percent. The South had an increase of 4.6 percent while the Northeast had a 4.1 percent increase. The Midwest had a sizable decline of 6.5 percent.
- All regions showed gains in sales from a year ago except the West where sales declined 1.7 percent. The Northeast had the biggest increase of 11.6 percent followed by the South with a gain of 6.5. The Midwest had the smallest gain of 3.2 percent. The South leads all regions in percentage of national sales at 41.2 percent while the Northeast has the smallest share at 13.9 percent.
- May’s inventory figures are up 1.4 percent from last month to 2.15 million homes for sale but the level is below historical averages. Inventories are down 5.7 percent from a year ago. It will take 4.7 months to move the current level of inventory at the current sales pace. It takes approximately 32 days for a home to go from listing to a contract in the current housing market, down from 40 days one year ago.
- Single family sales increased 1.9 percent while condos also increased 1.6 percent compared to last month. Single family home sales increased 4.7 percent and condo sales are also up 3.3 percent from a year ago. Both single family and condos had an increase in price with single family up 4.6 percent and condos up 6.0 percent from May 2015.
Market conditions vary across local markets, but the REALTORS® confidence and buyer traffic indices indicate that market conditions were mainly “strong” rather than “weak” in May 2016, according to the May 2016 REALTORS® Confidence Index Survey Report.
The indices also indicate that housing market activity was substantially unchanged compared to one month ago and one year ago. Across all property types, REALTORS® reported strong demand and brisker sales in their areas, but severely low inventory continued to depress sales, pushing prices up and making homes increasingly unaffordable, especially for first-time buyers. Sustained job growth and the low cost of obtaining a mortgage, with 30-year fixed rates still below four percent, are likely underpinning the strong housing demand.
First-time homebuyers accounted for 30 percent of sales. Purchases for investment purposes made up 13 percent of sales, while distressed properties were seven percent of sales. Cash sales accounted for 22 percent of sales. Nationally, amid tight supply, half of properties that sold in May 2016 were on the market for 32 days compared to 40 days in the same month last year.
Very low supply, declining affordability, appraisal issues, and lender processing delays were reported as the key issues affecting sales. Still, most respondents were confident about the outlook for the next six months across all property type. Respondents typically expected prices to increase 3.3 percent in the next 12 months.
 The indices are not seasonally adjusted.
Based on the Expectations & Market Realities in Real Estate 2016: Navigating through the Crosscurrents report—released by Situs RERC, Deloitte and the National Association of REALTORS®—commercial real estate (CRE) rode a wave of bullish capital markets in 2015. Large cap CRE sales volume continued its positive upward trend, with $543 billion in closed transactions during the year, based on data from Real Capital Analytics (RCA). However, in the first quarter 2016 sales volume dropped 20 percent on a yearly basis, to $111 billion. Part of the decline is due to the large portfolio transactions which occurred during the first quarter of 2015, and which were absent this year. In addition, investors have reached for the “Pause” button, as concern over global economic growth and financial market volatility mounted.
In contrast to the large cap transactions reported by RCA, commercial REALTORS® managed transactions averaging less than $2.5 million per deal, frequently located in secondary and tertiary markets. The Commercial Real Estate Lending Trends 2016 shines the spotlight on this significant segment of the economy.
The data underscore an important point about the recovery and growth in small cap markets. Based on comparisons of vacancies, rents, as well as sales, prices and cap rates, the rebound in smaller markets was delayed by three years and the rate of price growth has been shallower. Capital liquidity also recovered at a slower pace, as debt financing represents a much-larger portion of capital in small cap markets, whereas large cap deals benefit from significant equity contributions. Based on the 2016 report, the bulk of capital in REALTORS®’ markets flowed through regional and local/community banks, which accounted for 56 percent of transactions.
For regional and community banks—which account for 56.0 percent of all capital in REALTOR® markets—compliance costs stemming from financial regulations have made a stronger impact on available capital for CRE deals. With higher costs of compliance and higher capital reserve requirements for CRE loans, regional and community banks have been more cautious in their lending during 2015 and the first quarter of 2016, resulting in tightening of capital. The report further indicates that 59.0 percent of REALTORS® reported that insufficient bank capital remains an obstacle to sales in small cap markets.
The main reason for insufficient bank capital for commercial deals stems from new and proposed legislative and regulatory initiatives—Dodd-Frank, lease accounting, carried interest, etc.—which were cited by 25.0 percent of respondents. Another 17.0 percent indicated that regulatory uncertainty for financial institutions was an important barrier to bank lending for CRE projects, tied with U.S. economic uncertainty. The third main reason was a combination of reduced net operating income, reduced property values and equity.
For more information and the full report, access NAR’s Commercial Lending Trends 2016 at http://www.realtor.org/reports/commercial-lending-trends-survey.
The following maps show the REALTORS® Confidence Index—Six-Month Outlook across property types by state. Compared to current conditions in the single-family homes market, the market outlooks are broadly “moderate” to “very strong” in the next six months, partly because of the seasonal uptick in demand which is also underpinned by sustained job growth and the low cost of obtaining a mortgage.In the townhomes market, the outlook varies from “very weak” to “very strong” across the states, with “very strong” market outlooks in Oregon, Colorado, Nebraska, North Dakota, and the District of Columbia.
 Respondents were asked “What are your expectations for the housing market over the next six months compared to the current state of the market in the neighborhood(s) or area(s) where you make most of your sales?” The responses for each type of property are compiled into an index. An index of 50 indicates a balance of respondents having “weak” (index=0) and “strong” (index=100) expectations or all respondents having moderate (=50) expectations. The index is not adjusted for seasonality.
 The market outlook for each state is based on data for the last three months to increase the observations for each state. Small states such as AK, ND, SD, MT, VT, WY, WV, DE, and D.C., may have fewer than 30 observations. Respondents rated conditions or expectations as “Strong (100),” “Moderate (50),” and “Weak (0).” The responses are compiled into a diffusion index. A diffusion index greater than 50 means that more respondents rated conditions as “Strong” than “Weak.” For graphical purposes, states with index values 25 and lower are labeled “Very weak,” values greater than 25 to 49 are labeled “Weak,” a value of 50 is labeled “Moderate,” values greater than 50 to 75 are labeled “Strong,” and values greater than 76 are labeled “Very strong.”
Access to credit has expanded in many ways over the last two years including to borrowers with higher debt-to-income ratios, lower down payments, and even some limited non-QM offerings. But access for borrowers with lower credit scores has shown only modest progress. The Federal Housing Administration (FHA) asked for comment in April and May on its latest plan to ease lenders’ reluctance, but lenders who participated in NAR’s 10th Survey of Mortgage Originators responded with mixed enthusiasm.
For loans to be insured by the FHA, lenders must certify that the loans adhere to certain standards. Lenders are required to indemnify the FHA for losses on loans that don’t meet these standards, but more recently the Department of Justice has sued several lenders under the False Claims act because of the discrepancies between originated loans and what lenders certified. Some lenders have argued that potential liability under the False Claims act and the Department of Justice’s apparent willingness to prosecute raised the risk and potential costs for them to lend. To counter this, they have used overlays on credit scores to limit defaults and potential litigation. Thus, the certification process is at the heart of the FHA’s proposed changes.
Nearly a third or 27.3 percent of participants in 10th Survey of Mortgage Originators indicated that despite the FHA’s proposed changes to its certification policy, they would maintain a wait-and-see approach before relaxing overlays on lower credit borrowers. Another 27.3 percent indicated that the change would not result in increased lending to lower credit borrowers. However, 45.5 percent of this sample, which is dominated by mortgage bankers, already lend below the 640 threshold.
Many non-bank lenders have expanded into the lower credit spectrum, but consolidation in the non-bank sector is likely. Consequently, further broadening of the lending base for low-credit borrowers is necessary from both well capitalized non-banks and banks. To this end, the FHA continues to work to expand access to credit, but it may take time for its latest effort on certifications to bear fruit.
 Some non-bank lenders have pushed down the credit spectrum since the fall of 2015, while retail banks remain unmoved.
The lending industry has struggled with recent changes to the closing process. However, the 1st quarter Survey of Mortgage Originators shows clear improvements in handling the new regulations.
The new Know Before You Owe or TILA RESPA Integrated Disclosures were implemented in October, but lenders have wrestled with incorporating the changes into their processes. However, survey respondents in the 1st quarter indicated a sharp drop in the share of transactions that were impacted dropping from 8.3 percent to 1.8 percent. Simultaneously, the share of transactions that were cancelled due to TRID fell to none and average delay fell from 6 days to 3.8.
However, a majority 70.3 percent of lenders continue to advise their clients to take rate locks that are longer than the standard 30-days. Respondents advised for modestly longer locks than in the 4th quarter including several lenders who recommended a modestly longer 7-day rate lock. Rate lock extensions also increased, but 73.3 percent of lenders who advised for longer locks felt that they could close on time without them.
Lenders made great strides in the 1st quarter to normalize operations under TRID. However, anecdotes suggest that they have increased staffing and costly manual underwriting to deal with unclear interpretations of the regulations. The CFPB has indicated that it will recommend changes to the process later this year. Clarifications and improvements from these reviews may help lenders to further normalize operations, but those changes would not come until late 2016 or 2017. In the interim, lenders continue to maintain a steady flow of financing for the real estate industry.
The 2016 Member Profile provides data on drone usage within the Real Estate industry. This question was added to the Survey in 2016, and provides information on current drone users and the optimism around drone usage in the future.
- Amongst real estate professionals, 23% of respondents personally use drones, has a colleague who uses drones or hires a contractor to operate drones for their business. Interestingly, 16% of respondents hope to use drones in the future.
- Commercial real estate specialists rely more heavily on drones than their residential counterparts. For example, 5% of commercial appraisers personally use drones and this number drops to 3% when asking the question to residential appraisers. Similarly, within property management 6% of commercial managers personally use drones and amongst residential the number decreases to 3%.
- International real estate specialists use drones the most, with 7% of commercial and residential professionals both personally using drones. Within the United States this number falls significantly with 3% of drone users in the West, South and Northeast and 2% of drone users within the Midwest.
- Of professionals who have completed over $ 10 million of real estate transactions in 2015, 7% currently use drones, 8% have a colleague within their office that uses drones and 34% hire a contractor.
- Twenty five percent of individuals who are twenty nine or younger hope to use drones in the future making this age group the most optimistic.
After steady improvements this spring, the average time-to-close, the time from contract to settlement, edged upward in May of 2016 relative to the same time a year earlier. On average, sales took 3.6 days longer to close compared to May of 2015. Last month’s disappointing reading is still well below the market peak of 5.7 set back in December.
Until May, the average time-to-close a home sale compared to the same month a year earlier, a means of adjusting for seasonal patterns, had fallen steadily suggesting that the market was adjusting to TRID-related delays. However, the May reading implies that fine-tunning of TRID closings, either on the front end or investor take-out, continues. The average delay is nearly three and a half times higher than pre-TRID levels, but lenders indicated no cancelled settlements in the 1st quarter, down sharply from the 4th quarter of 2015.
TRID or Know Before You Owe is a new set of rules governing the closing process. These rules are intended to help make consumers more aware of their financial liability, while streamlining the process. Settlement delays are likely to continue to ease as successful originators gain market share, vendor software improves, and demand from mortgage investors recovers. The CFPB has announced that it will address some of the issues raised about Know Before You Owe later this year.
The 2016 Member Profile shows some interesting changes in the demographics of National Association of REALTORS® (NAR) members. There are several major trends that have emerged from the data; the foremost is that there were many younger, new members entering the real estate business in the past year.
First, in NAR’s 2015 Member Profile, only 11 percent of the REALTOR® membership had less than one year of experience. That share nearly doubles to 20 percent with less than one year in the industry in 2016. Next, we see that new entrants are by and large younger in age. In 2015, only two percent of NAR members were under the age of 30. By 2016, that number increased to five percent.
The arrival of new, younger members to NAR has had a ripple effect on the demographics of its members. Most obvious is that it decreases the median age of NAR members. The median age for NAR members had been steady around 56 or 57 from 2011 to 2015. In the 2016 report, the median age of REALTORS® dropped to 53, the lowest it had been since 2008.
With so many agents with less than a year of experience, the median income decreased to $39,200 in 2015 from $45,800 in 2014. As younger agents are starting out, their incomes are lower. Thirty-two percent of NAR members with less than two years’ experience reported generating more than 50 percent of their business income from a secondary means, which is a large increase from only 14 percent in the previous year.
The typical REALTOR® in 2016 reported having 10 years of experience, which decreased from 12 years in the 2015 report. The median number of years residential sales agents (who account for 65 percent of all REALTORS®) reported being in the business dropped from 10 to six years of experience in 2016. Only 16 percent of members transferred from the management role to real estate in 2016, down from 19 percent in the previous year.
Additional indicators pointing to a younger membership for NAR abound. Members who reported they were single or not married rose from seven percent in 2015 to 10 percent in 2016. Homeownership for members 39 years and younger decreased from 70 percent in the previous year to 63 percent in 2016. Older members tend to have more vacation homes and properties for investment, which younger members cannot afford.
The share who owns a residential property (aside from a primary and vacation home) declined to 31 percent from 38 percent. The share who owns a commercial property declined to eight percent from 10 percent. The share who owns a vacation home remained unchanged at 13 percent.
NAR Members earned a median of 14 percent of their business from past clients and customers, decreasing from 20 percent in 2014. This figure declined due to the large share of new members with less than two years’ experience who reported no repeat business or referrals. Overall, it will be interesting is to see how these numbers will change in the coming years. To access the full report, go to: www.realtor.org/reports/member-profile